Trade Highlight #9

As I’ve said before, volatile times are opportunities to make money. Although the sum itself might not be my biggest profit, the strategy I used played out perfectly.

Last week we discussed a naked put option on a huge Chinese internet company. You can read this post via this link.

Introduction

Here is the option I will discuss this week:

-P CSCO 18 OCT 2019 $43 $0.99

You can find the details about this trade on number #113 on my Options Page.

It was the 15th of August, I was still on a road trip through Normandy and Bretagne in France. The night before I had read that Cisco had presented decent numbers but with a cautious outlook post market. Right there I decided that the day after, a bit after market open I would take the contrarian position.

Background information

Cisco is a company that I followed for quite a while and I’m impressed with their business. They turned around a legacy company and made a subscription based sales model which seems to be working perfectly. You might understand a thing or two about this company by looking at the stock price graph.

A multi year graph of Cisco Systems.

As I’m impressed with the company and they presented good number, with just a slightly cautions outlook I knew it could present a good opportunity.

I sold a short put, which means I went long on the stock. I selected the October expiration date so that I had two months of time to see what I would do with my position. I was hoping for a quick rebound, but you can obviously never be sure if that will happen or not.

Well it ended up happening. On the 19th of August I managed to close my position with a profit of around 50%. The trade lasted for three market days and in the meantime the stock price went from $46 back up to $48,50.

Volatility of the earnings report went out of the option premium, the stock price rose just 5% and three days had passed which also took out some premium of the option contract. All in all it meant that in five total days of time I bought back my obligation for just $0,48.

On my account alone this came down to a profit of $48,22 or €43,39, 51% profit.

Taking profit is important too, at time of writing (the 3rd of September) the stock price is back to $46,80. There would be no problem and I would still have quite a big margin of safety before I could get assigned at $43 in October. However when you reach 50% profit in a few days, it might be wise to just close the position as you never know what could happen in the market.

It was a tiny profit of just €43,39, however I traded this position on four accounts in total. The total profit was €173,56, or more specifically for me €43,39 + (130,17*0,15) = €62,92 due to commissions on the profit of other accounts.

Long story short

On August 15th I decided to use a contrarian strategy to go long on Cisco System with a short put. They had fallen from $56 to $46 due to sentiment and a cautious outlook on the earnings call. Within just three working days I managed to secure a profit of over 50% on multiple accounts. On my own account I profited €43,39, including commissions on other accounts the total profit was €62,92.

To find more information about options CLICK HERE.

For any questions regarding options, leave them down below in the comment section or simply hit me up on any of my social media channels!

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2 Comments

  1. Hello DI,
    Thanks for the inspiration. I am starting with options and so every practical example is welcomed.
    I have sold put on CSCO as well but still holding. I didn’t catch such a good price.
    Good luck.

    • DutchIndependence

      Hey Druss, that is great to hear! I’m happy I could help you on your own journey. Good luck with the Cisco position and let me know if you have any questions!

      DI

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